Investors to Apple: When Will the Clever Return?

The stock market is asking what's next, and analysis suggests a new form factor is needed.

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Calling someone clever is the most important compliment you can give to anyone who's really smart. Smart is just smart. Clever means you thought up something important. Way back in the 1970s, I was in grad school and had a full scholarship doing research for my PhD advisor. It was a great time and I had the chance to hang out in the lab with a really smart set of folks. Like the real world, academic careers are not always fair, and the smartest guy never got into a tenure track job; he ended up working in the lab with me.

He taught me about clever. Every single person in the lab would have probably qualified for MENSA, the high IQ society, based on SAT scores alone, but that doesn't make you clever. Clever was the ultimate compliment because you figured something out that nobody had, and if published, that was everything academia was all about. I will claim one semi-clever moment, before I degenerated into a Wall Street career.

Since Apple (NASDAQ:AAPL), disappointed investors with last week's earnings, let's go back very early and try to figure out when Apple was really clever. In the early years, Steve Jobs and Steve Wozniak developed their first personal computers, but there were other competitors in 1979, when something really clever occurred. Dan Bricklin invented the first spreadsheet, Visicalc, which is credited with transforming the personal computer from a hobby to a serious business tool. Visicalc was originally only available on the Apple II, and that alone may have given Apple enough time and resources to do something very clever.

In business, achieving "clever" is much more difficult than it is academia . Not only do you have to invent something, but then you also have to make it a commercial success. The greatest clever failure in computers was Xerox (NYSE:XRX). Xerox's PARC lab invented everything you are looking at right now. It invented the personal computer (tablets also count) and the graphical user interface (meaning you use a mouse or your finger to control your computer) Oh, the laser printer in the corner? It invented that also. The only thing Xerox didn't invent was the mouse. Someone else figured that out earlier.

Back in the early 1980s, Xerox let Steve Jobs into its lab to see this stuff, and suddenly Jobs became very clever. He got it, and the Macintosh was born. (I had one of the first with a single 3.5-inch floppy drive!) From that point on, Apple came to dominate the graphical design PC market, but IBM (NYSE:IBM) and Microsoft (NASDAQ:MSFT) dominated the business market. Jobs was booted out of Apple in 1985, and then in probably the second-worst unclever business decision, Apple licensed the "look and feel" of the Macintosh to Microsoft.

After that, Apple really struggled as Microsoft started to produce better Windows versions. Apple sued Microsoft for exceeding the original "look and feel" license and finally a settlement was reached; Microsoft agreed to continue to produce Office software for the Mac and also bought $150 million in Apple stock. This may have well been a Microsoft decision to prevent antitrust action, but the company did it.

Apple really needed clever and bought back Steve Jobs, who in the mean time started Pixar (NYSE:DIS) and NeXT. It took Jobs a couple of years, but he developed the iPod and iTunes, and Apple now was viable and highly profitable. By my standards, the iPod and iTunes were clever, but not "insanely" clever compared to the iPhone. The first iPhone was an unbelievably clever advance, and Jobs deserves all the credit for developing the smartphone.

Next was the iPad which was okay in my opinion, but a raging success, since by now anything Apple did had a massive cult following that lined up to buy anything new. This is sort of like the "unthinking believers" of the famous Apple Super Bowl ad in 1984.

So, here we are in January 2013. What have you done for us lately, Apple? Here is my analysis: Steve Jobs' super cleverness was all about complete innovation in a form factor, meaning the size of the screen. The iPod -- 1, 2 inches. The iPhone -- 3.5 inches. The iPad -- 9 inches. The new iPad-mini -- 7 inches.

The stock market is asking what's next, and judging by my analysis, a new form factor is needed. Apple TV? Ten years ago as HDTV was starting, you could buy a super high-end plasma for $7,000. Now maximum resolution HDTVs are on sale at Wal-Mart (NYSE:WMT) for well under $1,000 and dropping steadily. You can't get higher resolution than the 1920X1080 that cable provides. There will be no better resolution for many years. What can Apple do here? A simpler iPad TV clicker? It seems too late for me to believe. There are no new form factors that I can see.

The form factor cleverness seems over. If there is a new super clever out there I can't see it, because, of course, I'm not clever enough. In the mean time, I suggest Apple's board of directors try a little cleverness. Why not split the stock 10 for 1 so some of the company's fanatical product owners could afford to buy a few shares of Apple stock and jump the dividend to start using up the cash -- because it won't be able to find someone as clever as Steve Jobs to come in again.

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